DraftKings Doubles Buyback to $2B Amid Cash Flow Inflection, but Underlying Risks Linger

What happened

DraftKings has expanded its share repurchase authorization to $2 billion, doubling the program announced in July 2024. This move is driven by the company's improving cash flow, with recent filings showing positive free cash flow of $407.6 million in 2024 after years of negative cash burn. However, the repurchases have primarily offset dilution from substantial stock-based compensation, such as $381.4 million in 2024, rather than providing net capital return to shareholders. Despite the positive narrative, DraftKings continues to report persistent GAAP losses and carries significant debt, including $1.265 billion in convertible notes due 2028 and a $600 million Term B Loan. Management's capital return shift highlights financial progress but does not eliminate the regulatory, tax, and antitrust pressures detailed in SEC filings.

Implication

The buyback expansion reinforces DraftKings' transition to positive free cash flow, supporting the bullish narrative of scaling unit economics and disciplined capital allocation. However, since repurchases largely counter dilution from stock-based compensation, the net benefit to shareholders is minimal and may not enhance per-share value meaningfully. This move could be an attempt to bolster investor sentiment amid volatile profitability, but it doesn't address core vulnerabilities like the $1.265 billion convertible debt and potential refinancing risks. Investors must monitor whether cash flow improvements are sustainable against headwinds such as rising gaming taxes, antitrust scrutiny, and competitive intensity in the online gambling sector. Ultimately, while the buyback indicates financial flexibility, it doesn't alter the high execution dependency and external policy risks that define the investment thesis.

Thesis delta

The expanded buyback underscores DraftKings' positive cash flow inflection, aligning with the bullish aspect of the thesis focused on free cash growth and capital returns. However, it does not mitigate the persistent GAAP losses, leverage from convertible notes, or regulatory overhangs highlighted in the DeepValue report. Therefore, the overall thesis remains a cautious 'POSSIBLE BUY' with unchanged risks around profitability, debt, and external policy developments.